Lloyds Banking Group has announced plans to float a 25 per cent stake in its revived TSB branch network in June.

The bank, which remains 25 per cent taxpayer-owned, is floating the 631 branch TSB to meet EU state-aid rules linked to its £20 billion government bailout at the height of the banking crisis.

The revived TSB branch network, which is the UK's seventh largest retail bank with 4.5 million customers, was originally packaged as the Project Verde divestment.

Co-operative Bank had been lined up to buy the branches before problems in its own finances emerged and the deal collapsed.

Lloyds said shares in TSB will be available to institutional investors as well as intermediaries selling to ordinary retail shareholders.

Retail shareholders will be offered one free share for every 20 shares acquired, up to the value of £2,000, as an incentive provided the shares are held for a year after the float.

Details of the pricing of the June float have yet to be announced, though reports put the book value of TSB at about £1.5 billion.

TSB chief executive Paul Pester said he expects retail investors will take between 15 and 20 per cent of the initial offering, but warned there would not be a "significant dividend in the early term", signalling no dividend payout is expected until the 2017 financial year.

Pester said there is "strong appetite" from investors for the offer, both in the UK and overseas, buoyed by the strengthening UK economy.

He said: “Today is a significant milestone on our journey to create a major new competitive force in UK banking.”

Lloyds will sell off further tranches of its stake in TSB as it looks to completely exit the business by the end of 2015.

Lloyds chief executive Antonio Horta-Osorio said: "The decision to proceed with an initial public offering of TSB is an important further step for the group as we act to meet our commitments to the European Commission.

"TSB has a national network of branches, a strong balance sheet and significant economic protection against legacy issues.

"It is already operating on the UK high street and is proving to be a strong and effective challenger, further enhancing competition in the UK banking sector."

TSB will be protected from past mis-selling issues like payment protection insurance with Lloyds remaining responsible for any claims up to the date of the share float.